The History of How Banks Created Money from Nothing
May 16, 2025 · Frisian News
Banks did not always lend money they held in reserve. The shift to fractional reserve banking and credit creation happened gradually, reshaping how economies work and who holds real power.
In the 1600s, a Dutch goldsmith in Amsterdam discovered something that would reshape human finance for centuries. He lent out gold that depositors had left with him for safekeeping, pocketing the interest. Most depositors never asked for their gold back at the same time. This man had found a way to turn promises into profit. He created credit from trust, and few people understood what he was doing.
This practice spread across Europe and became the foundation of modern banking. Bankers realized they could lend far more than the gold sitting in their vaults. A bank with one thousand gold coins could lend out five thousand or ten thousand, keeping just a fraction of deposits in reserve. The system worked as long as most people believed the bank would pay them back. Fear and doubt were the only real danger. A rumor that a bank lacked gold could trigger a bank run and collapse the whole game.
Governments liked this system because it let them borrow huge sums without having to own the gold first. Kings and parliaments discovered they could spend money they did not have, so long as bankers would lend it to them. Wars became cheaper and faster to start when you could finance them with borrowed credit instead of taxed silver. Central banks emerged in the 1600s and 1700s partly to serve as lenders to the state, not chiefly to manage the money supply for ordinary people.
The 1929 financial crash and the Great Depression exposed the danger of this system. Too many banks had lent too much against too little. When people panicked and tried to withdraw their money, the banks could not pay. Governments responded by creating deposit insurance, which meant people stopped worrying about whether their bank held real gold. This made banks bolder. They lent even more freely because the state would now backstop their failures.
Today, banks create the vast majority of money in circulation by issuing loans. When a bank lends you a mortgage, it does not hand over cash a depositor gave it. It creates a new entry in a ledger and calls it money. You owe the bank, and that debt becomes currency. Governments and central banks pretend this system is stable and rational. The 2008 crash proved it is not. Banks gambled with borrowed money, nearly broke the world, and governments handed them trillions in rescue funds while ordinary people lost their homes.
The public rarely asks hard questions about who gets to create money and on what terms. Bankers and governments like it that way. Small communities and countries that depend on sound money and honest lending suffer most when banks abuse this power. The goldsmith's trick from Amsterdam still works, but now it shapes the entire global economy.
Yn de jierren 1600 ûntduts in Friese goudsmid yn Amsterdam wat de finansjele wrâld foar ieuwen soe feroarje. Hy liende goud út dat beleggers by him yn bewaring hiene jûn, en streek de rinte op. De measte beleggers fregen har goud nea tagelyk. Dizze man hie ûntdutsk hoe't hy beloeften yn winst ûntreekje koe. Hy makke kredyt út fertrouwen, en net folle minsken begripen wat hy die.
Dizze praktyk ferspraide him oer Europa en wûn de basis fan modern bankjen. Bankiers merkten op dat se folle mear útliene koenen as it goud yn har kluzen. In bank mei tûzend goudmunten koe fiiftûzend of tientûzend útliene, en hâlde allinne in diel fan de deposito's yn reserve. It systeem wirke salang de measte minsken learden dat de bank har terobekoe. Eangst en twifel wiene it ienige echte gefaar. In rumor dat in bank gjin gould hie, mocht in bankrun útslurkje en it hiele spul ynstjirtsje.
Regeringen fûnen dit systeem good om't it har grutte summen útliene let sûnder earst it gould te besitte. Koningen en parlemint ûntdutskten dat se jild útjeve koenen dat se net hiene, salang bankiers it har lienje woenen. Oarlogen wjirren billegere en sneller as't wy se finansjearen koe mei leand kredyt ynstee fan belêste sulver. Sintrale banken ûntstienen yn de 1600s en 1700s foar in diel om as jildsjiebber fan de steat te tsjinjen, net earst om de jildfoarrode foar gewoane minsken te behearsje.
De finansjele krach fan 1929 en de Grutte Depresjon bleatten it gefaar fan dit systeem bleak. Te folle banken hiene te folle liend tsjin te wurch sikkerheid. Doe't minsken yn panyk har jild ôfnimme woenen, koenen de banken net betale. Regeringen reageerden troch sparders fersikeringje yn te stellen, wat betsjut dat minsken stopten mei twifeljen of har bank wirk gould hie. Dit makke banken brutalere. Se lienden noch frije om't de steat har mislukkingen no opfange soe.
Tegentwurdich meitsje banken it groutste diel fan it jild yn omloop troch lieningen út te jaan. As in bank jo in hypothyk jout, lit it net it jild dat in belegger der oan jae. It makket in nij item yn in register en neamt it jild. Jo binne de bank skuld, en dy skuld wurt faluta. Regeringen en sintrale banken dwaan alsof dit systeem stabil en rasjoneel is. De krach fan 2008 bewiesa dat net. Banken spilen mei leand jild, brochten de wrâld hast te fallen, en regeringen javen har biljoenen oan reddings jild wyl gewoane minsken har huzen ferlieren.
It publyk stelt selden harde fragen oer wa jild meitsje mei en oer hokker betingsten. Bankiers en regeringen fine dat prima. Lytse mienskipppen en lannen dy't ôfhinklik binne fan solide jild en earlik útlienen lide it meast as banken dizze macht misbrûke. De truk fan de Amsterdamse goudsmid wirket noch, mar no foarmet hy de hiele wrâldekono.
Published May 16, 2025 · Frisian News · Ljouwert, Fryslân